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Roper (ROP) Exhibits Strong Prospects Despite Headwinds

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Roper Technologies, Inc. (ROP - Free Report) has been benefiting from strength across its Deltek, Aderant, CliniSys and Data Innovations businesses along with recovery in education and healthcare end markets. Solid momentum across its Verathon, ConstructConnect and Neptune businesses driven by end-market recovery, strong customer retention and network expansion is also likely to drive its performance in the coming quarters. Roper expects its organic sales to grow more than 7% on a year-over-year basis for 2021.

The company has been investing in acquisitions to strengthen its businesses. In 2020 and the first half of 2021, it invested $6 billion and $15.5 million in buyouts, respectively. Some of the notable acquisitions made by the company are WELIS and Impact Financial Systems (both in September 2020). Both these buyouts have strengthened its iPipeline business. In the same month, it acquired Vertafore, Inc., which has enhanced its SaaS based offerings for the property and casualty insurance industry. Also, the acquisition of EPSi (October 2020) has been augmenting its Strata business. In the second quarter of 2021, acquired assets contributed 12% to the company’s sales growth.

Roper believes in rewarding shareholders handsomely through dividend payouts. In the first half of 2021, it paid out dividends worth $117.8 million, up from $106.6 million in the year-ago period. In November 2020, the company hiked the quarterly dividend rate by 10%. Healthy cash flow will likely support it to return more value to shareholders in the quarters ahead.

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In the past three months, this Zacks Rank #3 (Hold) stock has gained 6.2% against the industry’s decline of 1.5%.

However, the company is witnessing the adverse impacts of escalating costs and operating expenses. In second-quarter 2021, its cost of sales increased 20% on a year-over-year basis. Also, in the quarter, its selling, general and administrative expenses rose 20.8%.

Its highly leveraged balance sheet remains concerning. In the last three years (2018-2020), the company's long-term debt jumped 22.4% (CAGR). Exiting the second quarter, the metric remained high at $8,199.5 million, up 55.8% on a year-over-year basis. Also, in the quarter, its interest expense jumped 27.7%.

Key Picks

Some better-ranked stocks from the same space are Kadant Inc (KAI - Free Report) , IDEX Corporation (IEX - Free Report) and Helios Technologies, Inc (HLIO - Free Report) . While Kadant currently sports a Zacks Rank #1 (Strong Buy), IDEX and Helios carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Kadant pulled off an earnings surprise of 22.26%, on average, in the trailing four quarters.

IDEX pulled off an earnings surprise of 6.73%, on average, in the trailing four quarters.

Helios pulled off an earnings surprise of 36.46%, on average, in the trailing four quarters.